At LearnVest, we tend to call these “this or that” questions: As in, should I fund this financial goal first or that one? Sometimes it can seem like questions that involve retirement are trickiest of all. Why? Because it’s easy for retirement to seem like the least pressing concern, but it is also the one with the highest price tag—and the one you’ll be rewarded for most if you start saving early.

And most of us severely underestimate how much we need to save. That’s why today—in honor of the launch of our free, 10-day Retiring in Style Bootcamp—we’ll show you how to prioritize retirement against your other financial priorities. Once you’re clear on that, we’ll set you straight on just how you can make all the right moves and retire to [your island of choice], Mai Tai in hand.

Setting Your Financial Priorities

Before we dive into retirement vs. other financial priorities, let’s set a few ground rules. First, the best way to set up your budget is what we call the 50/20/30 Rule. (You can read all about it here.) In short, the 50/20/30 Rule states:

No more than 50% of your take-home pay should be spent on Essential Expenses, which are strictly defined as your housing, transportation, utilities and groceries. Nothing else.

At least 20% of your take-home pay should go to Financial Priorities, which are defined as retirement contributions, savings contributions and debt payments. And we’re not counting any retirement contributions you make through your employer, such as a 401(k) or a 403(b).

(Want to see how your own finances stack up against the 50/20/30 Rule? Run them through our Smart Budget.) Today, we’re going to focus in on that 20% slice: How exactly do you prioritize retirement over savings and debt? Doesn’t it all kind of feel equally important? Well, actually, we have a few guidelines for you.

How to Rank Your Financial Priorities

1. Retirement comes first.

We’re not putting retirement at the top of your priority list just because we’re launching Retiring in Style Bootcamp today. Retirement is the number one financial priority for pretty much everyone for three reasons:

Inflation causes the value of every dollar to shrink year after year, so by the time you retire, you’ll need much more money every year to live than you currently live on now.

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3. Debt

Debt may be third on this list, but that doesn’t mean it’s not a high priority. Yes, it comes after retirement and emergency savings, but it also comes before your Lifestyle Choices spending. That means that every month, you make your debt payments before you, say, buy a new phone or that Thanksgiving plane ticket home or the new work shoes you need. Why? Because debt is a huge burden, and because–in the case of credit card debt–your debt can grow. For that reason, when you tackle your debt, you should:

First work on paying down credit card debt over other kinds of debt.

Among your credit card balances, pay minimums toward everything but your highest-interest rate debt. Put as much as you can toward that.

Once that is paid off, prioritize your next-highest interest-rate debt. Non-credit card debt, such as from student loans, is lower in priority than credit card debt because the amount does not increase the longer you hold it.

Are You an Exception to the Rule?

While these are helpful guidelines that apply to most people, there are specific situations which mean you should allocate money a bit differently toward your Financial Priorities. Here are five scenarios in which real life bumps up against the rule, and the best advice might actually be something more tailored to the person’s specific situation:

A recent college grad who is making $30,000 a year and has $50,000 in school loans but no savings

A 55-year-old who has a three-month emergency fund but is behind on retirement savings and has $10,000 in credit card debt

A 35-year-old single mother with a two-year-old and no emergency savings

A 45-year-old single woman who has six months of emergency savings, no debt and is on track for retirement, but who has just been diagnosed with a serious illness that could put her out of work for several months

A 30-year-old who was just out of work for eight months and not only depleted her emergency savings but also got into $10,000 worth of credit card debt

Unfortunately, because these situations are unique, it’s hard for us to give a hard and fast rule about how each person should prioritize their Financial Priorities. For that reason, if you fit one of these profiles, you might want to see a Certified Financial Planner® to get appropriate advice for you. (We do sell such plans through LearnVest Planning Services.)

Now, Back to Your Best Intentions …

Congrats! Now you know how important retirement is relative to your other Financial Priorities–which not a lot of people know. But, do you know how much your retirement will cost, how much you should be putting away every month or which retirement accounts you need? If not, then sign up for our free Retiring in Style Bootcamp, which will guide you to these answers, quiz you on your risk tolerance, determine your replacement ratio and give you a road map for managing your retirement year after year. We promise: Your 65-year-old self will thank you for it–just before she hops on that plane.

“Once that is paid off, prioritize your next-highest interest-rate debt. Non-credit card debt, such as from student loans, is lower in priority than credit card debt because the amount does not increase the longer you hold it.”

I had 4-5 student loans that were consolidated through the Direct Loan program. I have a 5.5% interest rate, and the balance was around $42,000. I had to put it in forbearance for the last year, and now the balance is up to around $45,000. I plugged in my loan amount and interest rate into a loan amortization calculator, and if I pay this off in 25 years, I will wind up paying about $45,000 in interest on top of the original balance. That sure seems like an increase to me. But I had to put it in forbearance in order to pay off the CC’s I had racked up while in college ( I knew nothing about money, but I’m trying to educate myself and fix my past mistakes). Unfortunately, on my $30k/year salary, I couldn’t afford to make payments on both, but after 1.5 years, I am 3 months away from being completely CC debt free. Now that payment will go toward this loan, but it sure feels like a mountain that I will never be able to climb over.

Cheri Johnson Finkbeiner

You should mention health insurance as an essential expense.

Amali Heshan

Trying to save lots of money when I eventually sign for a home loan. I’ve signed up with Credit Sesame to improve my credit score. Has anyone else tried it?

Michael

I disagree with the ranking. paying off debts should be the first. doesn’t make sense if I am saving for retirement at an interest of 8% while paying my debts at 15% APR

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LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc. that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment advice. Please consult a financial adviser for advice specific to your financial situation. LearnVest Planning Services and any third-parties listed, discussed, identified or otherwise appearing herein are separate and unaffiliated and are not responsible for each other’s products, services or policies. LearnVest, Inc. is wholly owned by NM Planning, LLC, a subsidiary of The Northwestern Mutual Life Insurance Company.